What is a 'Limited Purpose Trust Company'

A limited purpose trust company is a trust company that has been chartered by the state to perform specific trust functions. These functions can include acting as a depositor or safe-keeper for securities or mortgages. The Participants Trust Company is an example of a mortgage depositor trust.

BREAKING DOWN 'Limited Purpose Trust Company'

The Depository Trust Company (DTC) in New York is another example of a limited purpose trust company. It was established in 1973 to hold securities in safekeeping for banks and investment firms. This allows them to make book-entry settlements on their trades, as well as reducing costs associated with trading, and allowing for more efficient clearing and settlement of securities transactions. The DTC retains custody of over 1.3 million active securities issues, which are worth $54.2 trillion as of July 2017, and which are based in more than 131 territories and countries, including the U.S.

Powers of a Limited Purpose Trust Company

The powers granted to a limited purpose trust company may vary depending on the state in which the trust company is chartered. In New York, limited purpose trust companies do not have the power to make loans or accept deposits, for example; however, there may be some limited circumstances under which a limited purpose trust company would have this power, if the loan or deposit were necessary for the trust to exercise its other fiduciary powers.

Any restrictions imposed on the operation of a specific limited purpose trust company will be specified in its organization certificate. An organization certificate does not specify the types of business in which the limited purpose trust may engage, but the trust company must agree to stick to a specific type of business in order to be granted its charter. The character of this business must be stated in the organization’s application to be chartered as a limited purpose trust company, and it cannot be changed without permission from the state’s Superintendent of Financial Services.

Limited Purpose Trust Companies as a Regulatory Solution

In states like New York, some fintech companies are using the limited purpose trust charter as a way to get around regulatory requirements. For example, the virtual currency exchange companies Gemini and itBit have obtained limited purpose trust company charters in New York, in order to avoid the need to get licensed as money transmitters, and to maintain the higher capital requirements of such a license. However, such a solution does not allow the companies to operate out of the state in which they are chartered without further licensing or charters.

  1. Trust Company

    A trust company is a legal entity that acts as fiduciary, agent ...
  2. Income Trust

    An income trust is an investment trust that holds income-producing ...
  3. Irrevocable Income-Only Trust - ...

    A type of living trust often used for Medicaid planning. It protects ...
  4. Authorized Investment

    Authorized investments are those that are permitted within a ...
  5. 5 By 5 Power In Trust

    A common clause included in many trusts allowing for beneficiary ...
  6. Land Trust

    A land trust is a legal agreement which transfers title of property ...
Related Articles
  1. Retirement

    How To Set Up A Trust Fund In Australia

    No, they're not just for the super-rich. But you need to know the rules.
  2. Financial Advisor

    Irrevocable Trusts: New Trends You Need to Know

    Several improvements and additional provisions have been added to irrevocable trusts in recent years making them considerably more versatile than before.
  3. Investing

    Establishing a revocable living trust

    This arrangement allows you to have more control over your estate — both before and after your death.
  4. Financial Advisor

    Advisors: Tips for When to Employ Living Trusts

    Revocable living trusts accomplish estate planning objectives that aren't possible with a will. Here are some of the cases that show when to use a trust.
  5. Managing Wealth

    Pick The Perfect Trust

    Trusts are an estate plan's anchor, but the terminology can be confusing. We cut through the clutter.
  6. Managing Wealth

    Encouraging Good Habits With An Incentive Trust

    Money can be a powerful motivator - why not use it to teach your heirs positive lessons?
  7. Investing

    The Benefits of a Third-Party Special Needs Trust

    How a third-party special needs trust can help your special needs child.
  8. Personal Finance

    Buying a Home in Trust

    Buying a home in a real estate trust allows for tax advantages, possibly avoiding probate court, and future family conflict. Below we outline the two different types and what to arm yourself ...
Trading Center